Rather like Gatwick Airport, Dixons is split between the north and the south, and although life is generally grim ‘up’t north’, in Dixons’ case it is the other way around.
Dixons is a group of many moving parts and the energetic and bright new chief executive Seb James knows that he will ultimately be judged on his ability to get everything moving forward at the same time, a task that was beyond his predecessor John Browett, who took control of the group at the end of 2007.
John Browett famously said that he didn’t think that the economic recession that took hold in 2008 would turn into “a global slump of biblical proportions”, and he was right, but it still did a pretty good job of sweeping away Dixons’ profits.
Under John Browett the focus on the “renewal and transformation” of the UK business resulted in a dramatic improvement in customer service and store design, and the Nordic operation remained the highly profitable jewel in the crown of the group, but he failed to tackle the persistent losses in the various start-up businesses in southern Europe.
He did manage to eliminate the ‘drain in Spain’, but, like a many-headed monster, as soon as one problem area in southern Europe was cut off, another one would appear.
Five years ago the market-leading Kotsovolos business in Greece was a usefully profitable group, making more than £20m in profits, but given the economic collapse in the country it has inevitably fallen into loss.
Amazingly, the Greek business experienced some modest like-for-like sales growth in the first half, but this was down to unusually good air-conditioner sales in the summer and the boost to TV sales from the digital switch-over in Athens. Trading will remain depressed for some time to come, but in the circumstances the local management is doing a good job and Dixons will tough it out there.
As for the losses in Italy, well, these have been pruned back, thanks to good cost-cutting, but the business is still not profitable and the weak economy remains a big challenge. Ideally, Dixons would pursue the recent Darty solution, which was to dump its loss-making business with a local competitor, but the UniEuro group in Italy is too big – it has more than 150 stores – for there to be an easy M&A solution.
Five years ago, the great white hope was that the start-up business in the fast-growing emerging economy of Turkey would turn into a money-spinner, but, alas, the Dixons joint venture there is still losing money, even though it has acquired some sort of scale via the establishment of a 32-store chain.
Unfortunately, lots of other people had the same idea and like-for-like sales collapsed in the first half, with the slowing growth of the Turkish economy swamped by the vast amount of new store space laid down in the industry. Dixons will have to try to find a solution via the inevitable process of industry consolidation that will have to take place, but playing that game will be expensive.
Of course, the big new disaster for Dixons is the collapse of its French-based ecommerce business Pixmania, which is heavily exposed to southern Europe.
Five years ago this operation was modestly profitable, but losses of more than £30m are on the cards for this year, before the exceptional cost of further goodwill write-offs and more than £30m of restructuring charges.
By next spring, Dixons hopes to have agreed a “social plan” with the employees of Pixmania to cut back peripheral product categories, close down minor country websites and pull out of the ill-fated push into retailing.
What is especially galling about Pixmania is that in the UK Dixons has largely seen off the competition from pure-play electricals etailers and shown that multichannel retailing can succeed in a world of dramatic technological change where customers still need and value advice and service.
Ironically, Pixmania’s e-merchant platform has been attractive to other retailers, including Carrefour, but unless somebody wants to take mercy on Dixons, in exchange for a sizeable dowry, it is hard to see how there is an easy answer to the urgent need to cut back the operating losses at Pixmania.
Having moaned about the intractable losses in southern Europe, it is only fair to say that the group looks in much better shape in northern Europe, with excess industry capacity being pruned by the recent closure of the ailing Expert group in Sweden and the imminent demise of Comet in the UK.
And Dixons is entitled to celebrate getting the UK business back into profit in the first half for the first time in five years.
But it would be a brave man who would bet that the future profit growth in the north for Dixons won’t continue to be eaten away by losses in the south…